The key regulatory changes facing advisers (and how to address them)

This week we had the opportunity to catch-up with Julie Sadler who was recently appointed Managing Director at Bankhall. There are numerous regulatory changes that advisers are having to understand and implement over the coming months. We explored these with Julie and looked at how Bankhall is supporting advisers to address the associated challenges.

DISCUS. Julie, what do you see you see as the immediate regulatory challenges for financial advisers?

Julie Sadler (JS). At Bankhall, we work with a range of financial advisers and the challenges will vary depending on the type of adviser, the type of firm, and market within which they operate. For example, I expect that a mortgage adviser will be monitoring the slowing UK mortgage market and no doubt wondering about the outcome of the FCA market study on the mortgage sector due to be published early 2018.

However, for financial advisers who provide a service to investment clients (typically the primary DISCUS audience), there is a packed agenda from the regulator. On a themed basis, we are seeing more firms requiring assurance that their investment propositions are robust enough, and for those carrying out DB transfers, assurance that their processes and advice is fit for purpose.

» Telephone call recording: MiFID firms will need to ensure they have a call recording solution in place by 3 January 2018 and Article 3 firms[i] will need to decide whether they will also record calls, or utilise the option to instead keep written records of all calls that relate to client orders, services or transactions.

» Aggregated costs disclosure: This continues to be a problematic area given the lack of FCA and ESMA guidance. Impacted firms will need to disclose total costs (relating to the investments, advice and/or portfolio management, and ancillary charges such as platform fees) on both a pre-sale and post-sale basis and provide an indication of the effects of the total charges on investment returns. The post-sale disclosure will be particularly challenging as this needs to be based on costs incurred (rather than be ‘indicative’ as is the case for pre-sale disclosure) and be given on a personalised basis and factor in issues such as fund switches, additional investments/encashment etc.

» Product Governance: Under MiFID II, firms will be required to consider the target market for which a financial instrument is suitable before selling or recommending it. They must also conduct regular reviews of those investments to consider whether they continue to meet the target markets needs or whether there are any changes required to their distribution strategy.

» Suitability Reports: MiFID II introduces a requirement for firms to issue the suitability letter ‘before a transaction is concluded’. This may have a significant impact on the sales processes for firms that currently issue these reports post-transaction.

Bankhall has been producing ‘special’ bulletins, covering each topic to help firms understand the requirements and explaining how Bankhall can help to prepare for the changes. Additional services range from conducting pre and post MiFID II assessments, through to a help desk facility to support queries and the sourcing of solutions, for example in the area of call recording.

Whilst not due until next year, the Senior Managers and Certification Regime (SM&CR) as another key piece of regulation and will change the way in which the FCA regulate people working in financial services. The SM&CR replaces the Approved Persons regime, which firms and advisers are familiar with.

The Senior Managers Regime will be focus on the most senior people within a firm and every Senior Manager will be required to have a document (a Statement of Responsibilities) that states what they are responsible and accountable for. This will need to be provided to the FCA before they are approved and when there are major changes to their role. Senior Managers will also have a ‘duty of responsibility’, meaning that if something goes wrong in their area the FCA will look to see if ‘reasonable steps’ were taken to prevent it from happening

The new certification regime applies to individuals below Senior Manager Level whose jobs mean that they have a big impact on customers, markets, or the firm. In future, firms will need to take more responsibility for assessing that their staff are fit and proper to carry out Certification functions (one of which is to give investment advice). FCA approval will not be required for anyone who performs a certification function and these staff will not appear on the FCA register.

Bankhall are helping firms to understand the requirements and how they can conduct appropriate assessments.

DISCUS. In addition to helping advisers understand the potential impact of new legislation, what other assistance does Bankhall offer?

JS. We can support our clients from the very beginning of their FCA Directly Authorised journey, for example working with advisers setting up their own businesses, navigating them through the FCA authorisation process. We help firms to set up their policies, procedures, systems and controls, ensuring they are ready to run their business.

It is also our role to continually help advisers ensure they are operating within the remit of FCA expectations, whether that is prescribed rules, guidance or principles for business. All of our regulatory services are designed to help firms understand and test how well they are achieving compliance – whether that is testing systems and controls, reviewing customer outcomes, or a review of training and competence arrangements.

We also recognise that our clients may need help with the broader activities that sit alongside running a regulated business. As a result, we have recently expanded the areas in which we can provide help to our clients. We can now offer support on human resource matters, mergers and acquisitions, due diligence, referrals to work with third parties on activities such as Paraplanning.

This article was created for the DISCUS website based on an interview with Julie Sadler, Managing Director at Bankhall. To find out more about the full range of services on offer, please visit the Bankhall website ›

3 Comments

Shell
on September 15, 2017 at 7:31 am

We are working closely with advisers and Platform providers in order to ensure clarity over who will be responsible for the elements of MiFID II that will affect those using DFM Managed or MPS model portfolios on Platforms. As an example the requirement to report a 10% drop in the value of a clients portfolio wont be undertaken by the DFM as they have no contractual relationship with the end investor. The platform providers don’t necessarily have the capabilities to do this either meaning that the responsibility will fall to the adviser which is something they need to be aware of especially of they don’t think that they are a MiFID investment firm.

We agree there has always been (and still is) a lack of clarity regarding periodic reporting obligations where DFMs are engaged in an ‘agent as client’ scenario and in our view the 10% portfolio depreciation notification requirement has simply highlighted this further. The FCA has confirmed to us that the regulatory responsibility lies with the discretionary investment manager to notify the client (in this case the client being the advisory firm as ‘agent’) but we would also agree that, as the responsibility for the client relationship lies with the adviser that they would still have an obligation to inform the end client having received this information. Where there is a direct relationship between the end client and DFM (i.e. – in the form a tripartite agreement between the adviser, client, and DFM) then this issue should not arise as the DFM should be reporting directly to the end investor

Regardless of the regulatory position the obligations and responsibilities of each party in respect of client reporting may also be framed in any agreements between the advisory firm, platform, and DFM service so we would suggest that firms ensure that they check the wording of any such agreements to ensure that they are fully aware of any reporting responsibilities they may have.

Shell, thanks for your comments and at Discus we agree that there are some challenges around the reporting requirements for MPS on platform. We will be posting another article on the topic this week and have asked our DFM partners for comment as we are keen to continue the debate – perhaps the platforms would also like to comment?